Wisconsin Lawyer
Vol. 83, No. 10, October 2010

Each year Wisconsin’s two U.S. District Courts and the U.S. Court of Appeals for the Seventh Circuit render decisions interpreting Wisconsin common law and Wisconsin statutes, in many cases under federal diversity jurisdiction.

Of course, federal court interpretations of Wisconsin law are of persuasive value to, but not binding on, Wisconsin courts.¹ These interpretations, however, still affect how Wisconsin law develops and is argued, including in cases pending in Wisconsin state courts.

This article reviews seven of the significant 2009 and 2010 federal court decisions interpreting Wisconsin law. The decisions encompass Wisconsin common law claims and interpretations of Wisconsin statutes.

Wisconsin Tort Law

Risk Contribution Theory of Liability. Tort liability under the risk contribution theory, recognized by the Wisconsin Supreme Court in 2005 in Thomas v. Mallet² and applied in that case to lead-paint-pigment manufacturers, breaches the constitutional bar on retroactive liability and thus violates substantive due process, according to the decision in Gibson v. American Cyanamid Co.³

The Gibson plaintiff, alleging injuries from ingesting paint containing white-lead-carbonate pigment, brought suit in Wisconsin state court against several companies involved in the lead-pigment industry under the risk contribution theory because the plaintiff could not identify the specific supplier, distributor, or manufacturer of the lead pigment in the paint he ingested. The defendants later removed the case to the U.S. District Court for the Eastern District of Wisconsin. Among the companies sued was ARCO, which succeeded to the liabilities of a company that sold white-lead carbonate in the 1930s and 1940s. ARCO moved for summary judgment.

Judge Rudolph T. Randa arrived at a framework to analyze ARCO’s potential liability based on the various opinions of the U.S. Supreme Court in Eastern Enterprises v. Apfel,⁴ which considered a challenge to the Coal Industry Retiree Health Benefit Act of 1992 under the Takings Clause and the Due Process Clause. Relying on Eastern Enterprises, Randa reasoned it would be unconstitutional to impose “(1) severe (2) retroactive liability on a (3) limited class of parties that (4) could not have anticipated the liability, and the extent of that liability is (5) substantially disproportionate to the parties’ experience.”⁵

The court in Gibson found each of these factors satisfied with regard to ARCO. Because the only potential connection between ARCO and the plaintiff was that ARCO’s predecessor in interest produced or marketed white-lead carbonate for use at some point while the house in which Gibson lived existed, the court concluded that ordering ARCO to compensate Gibson under the risk contribution theory for lead-poisoning injuries would be arbitrary and irrational.

The court determined that the risk contribution theory, by eliminating the traditional causation requirement in tort for injured parties, would impose a burden unrelated to any injury that was actually caused by ARCO and would bear no legitimate relationship to the government’s interest in compensating the victims of lead poisoning for their injuries.

Alternatively, the court reasoned that due process concerns expressed by the U.S. Supreme Court – although with regard to punitive damages⁶ – precluded the court from holding open ARCO to liability under the risk contribution theory. It would violate due process when there is no nexus or provable connection between a damages award and the harmful conduct of the defendant. For these reasons, the court granted ARCO’s summary judgment motion.

Reasonably Foreseeable Duty. In Mitchell v. Hess,⁷ an 11-year-old Boy Scout collided with and seriously injured a woman while both were skiing.

One of the defendants, the Bay-Lakes Council of the Boy Scouts of America, moved for summary judgment. The council, a nonprofit corporation that operates under a charter issued by the Boy Scouts of America, does not choose leaders or operate any troops. But it does raise and allocate funds, make training available to troop leaders, operate camping facilities (although not the ski area where this accident occurred), and issue a “local tour permit” that documents that adults who drive the scouts have adequate insurance and safety equipment.

The council moved for summary judgment on the plaintiff’s claims. Under diversity jurisdiction, the Eastern District Court considered Wisconsin negligence law and held as a matter of law that the council did not breach its duty of due care to the plaintiff. The court concluded it was not reasonably foreseeable that by issuing the troop a local tour permit, the council created a risk of harm to others.

Alternatively, the court concluded that liability was precluded on the basis of public policy because to allow “recovery would enter a field that has no sensible or just stopping point.” Similar claims against Boy Scout councils have been rejected by almost all other courts that have confronted them.

Wisconsin Personal Jurisdiction Law

In a case that involved the federal Fair Debt Collection Practices Act, Fried v. Surrey Vacation Resorts Inc.,⁸ the U.S. District Court for the Western District of Wisconsin interpreted and applied Wisconsin personal-jurisdiction law.

The plaintiff, a Wisconsin resident, acquired timeshare interests in three resorts in Branson, Mo., owned and managed by the defendant or its affiliates. Later, the plaintiff learned that entries had been placed on his personal credit report stating he was personally delinquent to the defendant for common-area maintenance charges related to these timeshares. The defendant refused to remove the entries from the plaintiff’s personal credit file and threatened to initiate a foreclosure proceeding against the plaintiff unless these amounts were paid. The plaintiff’s credit score dropped as a result of these entries.

Michael B. Brennan, Northwestern 1989, is a trial and appellate lawyer with Gass Weber Mullins LLC in Milwaukee. He can be reached at brennan@gasswebermullins.com.

Under Federal Rule of Civil Procedure 4(k)(1), service “is effective to establish jurisdiction over the person of a defendant, (A) who could be subjected to the jurisdiction of a court of general jurisdiction in the state in which the district court is located … [or] when authorized by a federal statute.” Although some federal legislation permits nationwide service of process, the Fair Debt Collection Practices Act does not. Therefore, the plaintiff had to establish that the defendant could be subject to a court of general jurisdiction in Wisconsin.

The court undertook the following two-step inquiry: 1) Was the defendant subject to jurisdiction under Wisconsin’s long-arm statute? 2) If so, did the exercise of such jurisdiction comport with the Due Process Clause of the Fourteenth Amendment?

As to the first step, the plaintiff alleged jurisdiction under the “local injury; foreign act” provision of Wis. Stat. section 801.05(4)(a), which requires a showing of three elements: 1) the plaintiff’s injury occurred within the state, 2) the defendant committed an out-of-state act, and 3) the defendant carried out solicitation or service activities in the state. After reviewing Wisconsin law on what constitutes solicitation, the court concluded that the defendant did not generate new business from Wisconsin residents by calling, mailing, or conducting in-person promotions or sales. The court was persuaded by the following facts: none of the defendant’s officers or employees visit Wisconsin for business activities; the defendant does not advertise or sell timeshares in Wisconsin; it provides no services in Wisconsin; and in this case, the plaintiff solicited the defendant’s business, not vice versa.

Even if the plaintiff had shown that the provisions of Wisconsin’s long-arm statute applied to the defendant, the court determined that the defendant’s contacts with Wisconsin were not such that the defendant could reasonably anticipate being sued in a Wisconsin court. The plaintiff had not shown that the defendant “purposefully established minimum contacts in the forum state” and that the “assertion of personal jurisdiction would comport with fair play and substantial justice.” Because these due process requirements also had not been complied with, the Western District Court granted the defendant’s motion to dismiss the case for lack of personal jurisdiction.

Wisconsin Fair Dealership Law

In 2010, the applicability of the Wisconsin Fair Dealership Law (WFDL) was at issue in two diversity cases before the Eastern District Court.

• In Brio Corp. v. Meccano S.N.,⁹ a distributor of Erector brand toys (Brio) sued the manufacturer of those toys (Meccano) asserting violations of the WFDL. Brio asserted it was a dealer “situated in” Wisconsin, and therefore Meccano’s termination notice and lack of good cause for termination violated WFDL requirements.

Meccano removed the case to federal court, where it argued that there was no community of interest between Brio and Meccano relating to the sale of Erector toys in Wisconsin and thus Brio was not a dealer and not entitled to WFDL protections.

The district court in Brio considered the 10 facets of a community of interest as laid out by the Wisconsin Supreme Court in Ziegler Co. v. Rexnord¹⁰ and found issues of fact, especially because Brio was the exclusive distributor of Meccano’s products in the United States. In fact, Brio derived on average 21 percent of its revenues from Meccano products, and in the last year of their relationship Meccano products constituted more than 37 percent of Brio’s total sales.

The court also concluded that Brio is “situated in” Wisconsin because it is a Wisconsin corporation with warehouses and employees located in Wisconsin, and it does business within the state’s geographic borders. Further, the court denied Brio’s suggestion that the distributor agreement at issue was not in effect when it was terminated. The case later settled after mediation before an Eastern District magistrate.

• The decision to merge a local Girl Scout council into a larger regional council resulted in another WFDL decision from the Eastern District Court, in Girl Scouts of Manitou Council Inc. v. Girl Scouts of the United States of America Inc.¹¹

The Manitou Council, which serves seven counties in eastern Wisconsin, contended that the national Girl Scouts organization (GSUSA) violated the WFDL when it implemented a restructuring that merged Manitou into a regional council covering northern Wisconsin and part of the upper peninsula of Michigan.

Manitou sought a preliminary injunction against the restructuring, which the district court denied. The U.S. Court of Appeals for the Seventh Circuit reversed and enjoined the GSUSA from making any changes to or interfering with the Manitou Council’s jurisdiction pending final resolution of the case.¹² In its opinion, the Seventh Circuit found that Manitou was a “dealer” under the WFDL.

On remand, Manitou argued that the attempt by the GSUSA to alter its council borders would have violated the WFDL by “substantially changing the competitive circumstances” of the dealership agreement between the parties, and that the GSUSA did not have good cause for its actions. In response, the GSUSA argued its own circumstances constituted good cause for this change under the Wisconsin Supreme Court’s decision in Ziegler II,¹³ and that applying the WFDL to the GSUSA would violate its First Amendment right to freedom of expressive association.

The district court rejected the GSUSA’s first argument but accepted the second. The court held that the GSUSA had not met its burden to prove “an objectively ascertainable need for change.”

Further, the court determined that application of the WFDL to prevent the GSUSA from implementing its restructuring would constitute a burden on that organization’s ability to advocate its viewpoints, including ensuring that the Girl Scout message was not diluted. The district court also found that application of the WFDL would be an intrusion into the GSUSA’s internal efforts to organize.

Because infringement on expressive association is subject to strict scrutiny, and maintaining the borders of the Manitou Council did not constitute the “least restrictive means” to fulfill the state’s interests in protecting dealers serving grantors that are expressive associations, the district court ruled for the GSUSA as a matter of law on its WFDL claims. The Manitou Council has appealed the decision.

Wisconsin Insurance Law

In Johnson Outdoors Inc. v. General Star Indemnity Co.,¹⁴ the Eastern District Court considered whether, when an insurer breaches its duty to defend, that insurer is automatically liable for the entire settlement in the underlying action even though the insuring agreement may have covered only one of several claims against the insured. Neither Wisconsin’s state courts nor courts interpreting Wisconsin law have spoken directly to this issue.

In earlier proceedings, the district court had determined that the insurer (General Star) had breached its duty to defend in a case involving allegations of falsely claiming patent protection on certain canoes and kayaks its insured (Johnson Outdoors) had manufactured. In the context of a discovery dispute, the parties contested whether a settlement ending the underlying case is relevant to the issue of damages suffered by the insured as a result of the insurer’s breach.

The court considered cases from Wisconsin’s appellate courts and the Seventh and Eighth Circuits. The district court reasoned that Wisconsin has not adopted an obligation to pay the entire settlement as an automatic consequence of a finding of a breach of the duty to defend, and that discovery could be had to ensure that any damages are tethered to the breach at issue. Accordingly, the court granted the insurer’s motion to compel, and it did not bar the insurer from attempting to obtain evidence showing that the damages claimed by the insured do not flow from its breach. The district court did not “open the door to any and all materials that may somehow relate” to the underlying action. Rather, only evidence tending to indicate the measure of settlement funds attributable to the underlying claims for allocation purposes would be relevant as to damages.

Wisconsin Property Rights

Does a student have a property right under Wisconsin law to receive a transcript? A student whose tuition debt to Cardinal Stritch University in Fox Point was discharged in bankruptcy sought her transcripts in In re Kuehn.¹⁵ The bankruptcy judge ordered the university to provide the transcript (and to pay attorney fees), and the university appealed. The Western District Court affirmed the bankruptcy court’s rulings, and the university again appealed.

The Seventh Circuit considered whether the student had a property interest because a certified transcript is “part of the package of goods and services that a college offers in exchange for tuition.” Property interests are created and defined by state law. With no federal law requiring a different result, the federal appeals court looked to Wisconsin law.

Wisconsin courts have not considered whether a student has a contract or property right to a transcript. Under Wisconsin common law, property rights may arise from custom and usage. The Seventh Circuit considered it likely that Wisconsin’s courts would deem the students and colleges to be joint owners of the data reflecting grades “because that is how the educational contract is routinely understood.” The court recognized the “custom that amounts to an implicit term of the educational contract,” and concluded that the student had a Wisconsin state-law right to receive a certified copy of her transcript.

The university’s refusal to honor that right until the student paid her back tuition was an act to collect a debt and violated the automatic-stay-and-discharge injunction of the bankruptcy court. Accordingly, the Seventh Circuit affirmed.

Endnotes

Wisconsin Lawyer